Pound Sterling - UK Markets

Sterling's currency exchange rates are relatively unchanged this morning, retaining support above 1.5 on the US dollar and weakening to just over 1.12 against the euro. Sterling has however, dipped against the Australian dollar to 1.98 and is currently trading at just over 2.5 against the New Zealand dollar.

The FTSE gained 1.6% this morning, despite news that US banks would require additional capital injections. RBS has also posted a significant loss in the first quarter, losing GBP44 million pre tax, largely due to credit write downs. This comes after the bank lost GBP24 billion in 2008 and the UK taxpayer gained a 70% stake in the bank. There is speculation this morning that this may increase to 95% under the asset protection scheme. Yesterday the Bank of England voted to leave interest rates unchanged at 0.5% and expand its quantitative easing programme by an additional GBP50 billion. Figures this morning show producer prices in the UK have fallen to multi-year lows as the price of fuel has plummeted in recent months. There is no further data in the UK today

US Dollar - US Markets

The dollar dipped sharply overnight as the results of stress tests on US banks were made public but has recovered ground this morning, with the exchange rate climbing to 0.74 against the euro and 0.66 against the pound. The dollar is also up to 99 yen and is currently trading at 1.16 versus the Canadian dollar.

Results of stress tests on the largest US banks show 10 banks need a combined USD74 billion to boost capital reserves. The tests are designed to evaluate the capital reserves of US banks and their resilience should market conditions worsen. Bank of America posted the worst results and the bank requires an extra USD33 billion alone. The banks are expected to raise funds through a combination of government loans, asset sales and private capital injections. The results have helped reduce the sense of uncertainty hanging over the US financial sector and failed to halt the bullish run in equities. Average hourly earnings, weekly hours and the unemployment rate for April are due today and this could impact on US dollar trading early next week.

Euro - European Markets

The euro gained sharply against the dollar following results of the stress tests but has since trimmed these gains and is currently trading at 1.34. The euro has also gained against the pound, yen and many of the Asian currencies while weakening against the Australian and Kiwi dollars.

The ECB acted largely in line with market expectations yesterday, reducing the base rate by 0.25% to 1% and announcing plans to purchase debt as a means of increasing money supply. Although they stopped short of calling it quantitative easing, this is what economists regarded it as and the euro quickly lost ground against the pound following the announcement. A 3.3% rise in German manufacturing orders for April has seen the euro strengthen this morning. This is largely driven by the 5.6% increase in export orders and the German trade balance has risen to EUR11.3 billion in March. German industrial production figures are due out this morning.

Other Currencies - Highlights

The Australian dollar continued its ascent yesterday as the higher yields and export led economy attracted investors to the currency. The Australian dollar has fallen below AUD2 against the pound for the first time in over 13 years. Increasing growth prospects are likely to see the Aussie make further gains. RBS economists are predicting Sterling could be sitting at a low point at present while markets wait for quantitative easing and interest rate reductions to work their way through to the wider economy.

Japanese stocks have gained ground this morning on the back of the view that the worst of the recession could be behind us. The Japanese economy still faces substantial problems with Toyota, the world's largest car maker, slashing its annual dividend and doubling their annual loss estimates. The leading economic index for Japan is out next week.